On February 22, the Japanese stock market witnessed a significant rise, with the Nikkei 225 index soaring past the 39,000 markThis surge surpassed the previous all-time high set during the bubble economy era on December 29, 1989. By the closing bell, the Nikkei had climbed by 2.19% to settle at 39,098.68 points, marking a record close and an impressive year-to-date increase of over 16.8%.

Looking ahead, the China International Capital Corporation (CICC) highlighted several factors contributing to this bullish trend in the stock marketAccording to their latest report, the influx of foreign investment, steady global and Japanese economic growth, the realization of a salary-price cycle domestically, the continued strength of "special estimation" policies, and a shift in household savings towards investments are all expected to support the Nikkei's potential breach of the 40,000 points mark within 2024.

In the A-share market, brokerage stocks showed notable performance during the afternoon session, with names like Guangfa Securities, Huachuang Yuncai, and Shouhua Securities among the biggest gainersThe Shanghai Composite Index expanded its gains to 1%, with the Shenzhen Component Index rising 0.6% and the ChiNext Index increasing by 0.19%. China National Offshore Oil Corporation (CNOOC) surged over 4%, reaching a historical high, while both PetroChina and Sinopec also saw gains exceeding 2%.

Moreover, significant developments emerged from the United StatesOn February 21, during an event in San Jose, California, giant semiconductor manufacturer Intel hosted its inaugural wafer foundry seminar

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U.SCommerce Secretary Gina Raimondo emphasized the need for increased government subsidies and investment in the semiconductor sector to regain global leadership, calling for the passage of a second chip act.

The Nikkei breaches the 39,000 point mark.

On February 22, the Japanese stock market continued its upward trajectory with the Nikkei 225 index briefly crossing the 39,000 markExceeding its previous peak from December 1989, the index ultimately closed with a gain of 2.19%, reaching 39,098.68 points, a new record high and an increase of over 16.8% year-to-date.

The day's rally was largely driven by semiconductor stocks, with Screen rising by 9.9%, Disco jumping over 9%, Tokyo Electron up by 5.6%, Advantest gaining 6.3%, Renesas Electronics increasing by more than 5%, and Lasertec climbing by 5.3%.

CICC analyzed this bull market and concluded that the Nikkei's decade-long rise is attributed to increases in earnings per share (EPS) due to Japanese companies aggressively expanding internationally and capturing market shares on a global scaleThis continuous improvement in corporate profitability has fundamentally supported the market.

The reason behind the rapid growth in Nikkei EPS lies in the global economic foundation of Japanese corporate performance rather than merely domestic factors; Japanese firms have been consistently improving their profitability.

According to data in CICC's report, from early 2013 to February 2024, among major global indices, the Nasdaq showed the strongest performance with an increase of over 400%, followed by the Nikkei and the S&P 500, both climbing approximately 270%. The Tokyo Stock Price Index (TOPIX) and the Dow Jones Industrial Average recorded increases of around 200%.

Aiming for 40,000 points?

Looking to the future, CICC's report suggests that the Nikkei might surpass the 40,000 points threshold by 2024. Compared to the high of over 38,000 points in 1989, the current valuation levels of Japanese stocks are more reasonable, with better profitability and a greater number of globally competitive firms coupled with superior corporate governance.

Analyzing the structure of investors reveals that foreign institutional investors currently hold the largest share of Japanese stocks and are the most active traders

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Their active purchases have been linked to significant increases in stock prices, while over the past decade, the Bank of Japan has maintained approximately 7% of Japanese stocks, providing a stabilizing effectCICC believes that no immediate sell-off risk exists over the next one to two years.

The report also highlighted that companies have consistently implemented stock buybacks over the past decade, with "special estimation" playing an accelerating roleIndividual investors, who have been net sellers since the collapse of the bubble economy, hold significant cash reserves, which could potentially provide momentum to the market if they shift from savings to investments.

Given the current inflation scenario, CICC suggests that Japan is better positioned to leverage leverage and invest in inflation-protected assetsHistorically, the impact of the Bank of Japan's interest rate hikes on the stock market has been relatively limited.

Major news from the U.S.

On February 21, during an event hosted by Intel in San Jose, California, the company launched its first wafer foundry serviceU.SCommerce Secretary Gina Raimondo stated that to regain global leadership in semiconductors, the U.S. needs to escalate government subsidies and investment, advocating for the formulation of a second chip act.

In August 2022, the U.SPresident officially signed the CHIPS Act, committing over $52 billion in government subsidies for semiconductor research and production, as well as investment tax credits for chip plants.

However, during the recent event, Raimondo emphasized that a single chip act is insufficient for the U.S. to reclaim its leadership in the semiconductor supply chain.

“Let me be clear, we cannot and do not want to manufacture everything in the U.S

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We do not want all chips to be made in the U.SThat’s not a reasonable goal,” she added. “However, we do need to diversify our semiconductor supply chain and have more manufacturing in the U.S., especially for advanced chips critical for AI.”

Raimondo also mentioned her discussions with Sam Altman, CEO of OpenAI, who is advocating for U.S. government approval of a massive joint venture aimed at enhancing AI chip manufacturing globally.

She revealed that during her conversations with industry clients, their projections of required chip quantities were staggering.

Since the CHIPS Act was passed in 2022, although over 170 chip companies worldwide have applied for subsidies under this legislation, the U.SDepartment of Commerce has only disbursed three small grants to date.

Earlier this week, semiconductor manufacturer GlobalFoundries received what is the largest grant to date under the act, amounting to $1.5 billion.

As a leading American semiconductor giant, Intel is also among the companies seeking funding support from the CHIPS ActRecently, reports suggested that Intel is delaying the completion of its new chip plant in Ohio until 2026.

Speculations have arisen that the delay in government subsidies is one reason for Intel's postponed construction schedule.

Nonetheless, recent reports citing informed officials indicate that the U.S. government is negotiating to provide Intel with over $10 billion in subsidies.

During the recent seminar, Intel's CEO Pat Gelsinger stated that announcements regarding subsidies will be made "soon."

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